10-QPeriod: Q1 FY2002

MOODYS CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 14, 2002For Securities:MCO

Summary

Moody's Corporation (MCO) reported strong financial performance for the first quarter of 2002, with significant revenue and net income growth compared to the same period in 2001. Total revenue increased by 28.5% to $231.6 million, driven by robust growth in the ratings segment, particularly in structured finance. Net income surged by 51.3% to $72.6 million, resulting in diluted earnings per share of $0.46, up from $0.30 in the prior year quarter. The company's financial health remains solid, supported by healthy operating cash flow. Notably, Moody's completed the acquisition of KMV for $210 million in April 2002, which is expected to expand its credit risk assessment business. Despite ongoing legal proceedings and tax matters, management expressed confidence that these issues will not materially affect the company's financial position.

Key Highlights

  • 1Revenue increased by 28.5% to $231.6 million for Q1 2002 compared to Q1 2001.
  • 2Net income grew by 51.3% to $72.6 million in Q1 2002, with diluted EPS rising to $0.46 from $0.30.
  • 3Strong performance in the structured finance ratings segment, with revenue up 49.9%.
  • 4Acquisition of KMV for $210 million completed in April 2002 to bolster credit risk assessment services.
  • 5Operating expenses increased by 7.5% to $92.8 million, significantly lower than the revenue growth rate.
  • 6Company maintained compliance with all debt covenants as of March 31, 2002.
  • 7Cash flow from operations remains positive, though lower than the prior year due to tax payments and incentive compensation.

Frequently Asked Questions

The primary driver of Moody's revenue growth in the first quarter of 2002 was the strong performance in its ratings segment, particularly in structured finance, which saw a 49.9% increase in revenue. Growth in other rating groups and in research and risk management services also contributed.

The acquisition of KMV for $210 million was completed in April 2002, subsequent to the end of the first quarter. While it was funded partly by borrowings under existing credit lines at the end of the quarter, its financial impact, including integration and expansion of services, will be reflected in future reporting periods.

Moody's is involved in several legal proceedings, including a significant antitrust lawsuit filed by Information Resources, Inc. (IRI) and a lawsuit in France by AFPER related to Russian debt ratings. The company also faces potential tax liabilities stemming from past restructuring. Management believes that the ultimate liability in these matters will not have a material adverse effect on the company's financial position, results of operations, or cash flows, but they are unable to predict the final outcome with certainty.

As of March 31, 2002, Moody's was in compliance with its debt covenants. The company had $300 million in notes payable and an undrawn $160 million revolving credit facility. Cash flow from operations is expected to be positive, and the company intends to use free cash flow for share repurchases, while also considering more permanent financing for the KMV acquisition.